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Tax season officially begins early next year, but many tax-saving measures must be taken by December 31.

Some of the most lucrative come from the Inflation Reduction Act, which provides enhanced tax credits for improving your home’s energy efficiency and allows car buyers to electrify their vehicles. Others include the usual deductions for charitable donations, 401(k) funding, and securities losses. If you are a senior, you will also need to know the required minimum distribution (RMD) rules, which changed with Secure Act 2.0, or face hefty penalties.

This can all seem complicated and time-consuming, especially with busy holiday activities. So we’re going to break it down here for you so you can act quickly and take advantage of as many tax savings as possible before time runs out.

Which energy-efficient home improvements qualify for tax credits?

Improvements that may qualify for a tax credit include:

Clean electricity products for the home

  • Solar panels for electricity from a local supplier.
  • Home Battery Backup Storage with a capacity of 3 kWh or more.

Heating, cooling and water heating

  • Electric or natural gas heat pumps; electric or natural gas heat pump water heaters; central air conditioners; natural gas, propane or oil water heater; natural gas, propane or oil furnaces or hot water boilers that meet or exceed specific efficiency levels established by the Energy Efficiency Consortium.
  • Solar water heating products, certified for performance by the Solar Rating Certification Corporation or a comparable entity approved by the government of the state in which the product is installed.

Other energy efficiency improvements

  • Oil furnaces or hot water boilers that meet or exceed 2021 Energy Star efficiency criteria and are evaluated by the manufacturer for use with fuel blends of which at least 20% by volume is an eligible fuel.
  • Distribution panels, subpanels, branch circuits or power supplies that are installed in accordance with the National Electrical Code and have a load capacity of 200 amps or more.
  • Insulation materials and systems that meet the standards of the International Energy Conservation Code.
  • Exterior windows that meet Energy Star’s most efficient requirements.

How much are the tax credits for energy efficient home improvements?

The amount of credit you can take out is generally 30% of the total improvement expenses for the year of installation. Some items, however, are capped up to a certain amount each year, but have no lifetime limit, meaning you can spread out your home renovations and claim the maximum credit each year. For more details, see the Department of Energy website.

To claim the credit, file IRS Form 5695 with your tax return and receipts.

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What tax credits are available to car buyers?

If you’re still looking for a car for your personal use in the United States, purchase and take delivery of a new plug-in electric vehicle (EV) or fuel cell vehicle (FCV) by end of the year, you may be entitled to a clean vehicle tax. credit of up to $7,500.

Your adjusted gross income this year or last year must be below the following thresholds to qualify:

  • $300,000 for married couples filing jointly
  • $225,000 for heads of household
  • $150,000 for all other filers

The seller must also give you information about your vehicle’s qualifications, register you online, and report the same information to the IRS. If not, your vehicle will not be eligible for the credit, the IRS warns.

To claim your credit, file Form 8936, Qualified Plug-In Electric Motor Vehicle Credit (Including Qualified Two-Wheel Plug-In Electric Vehicles) with your tax return and provide your vehicle identification number.

Have you maxed out your 401(k)?

Supplement your company’s 401(k) if you haven’t already, because your contributions are tax deductible unless they are in a Roth 401(k). A Roth 401(k) is funded with after-tax dollars, so your withdrawals are tax-free later.

Contribution limits are $22,500 for employees or $30,000 if you are over 50. If your company matches, the total combined employee and company contributions cannot exceed $66,000.

Can’t make the maximum contribution to your 401(k)? At least try to contribute the amount your employer is willing to match. You can also deduct your employer contributions.

Have you finished your gift giving?

If you itemize your taxes — typically when you expect deductions, including for charitable donations, that total more than the standard deduction — consider maximizing donations to IRS-qualified organizations.

You can generally deduct up to 60% of your adjusted gross income. Provided you’ve held them for more than a year, appreciated assets, including stocks and long-term appreciated real estate, are generally deductible at fair market value, up to 30% of your adjusted gross income.

If you don’t yet know which organizations you want to donate to, you can create a donor advised fund (DAF), invest your money in it, benefit from the tax deduction and decide later how you want to disburse the proceeds. funds. Just make sure all paperwork is completed correctly to claim your deduction.

“The CFO must send a letter acknowledging receipt of the donation, describing the asset and value, by the end of the year,” said Ryan Losi, executive vice president of certified public accounting firm PIASCIK.

Have you cleaned out your wallet?

Check your portfolio to take advantage of tax-loss harvesting, which is when you sell an asset at a loss to offset taxable capital gains and potentially offset up to $3,000 of your ordinary income.

  • Let’s say you have $20,000 in capital gains and $25,000 in losses. You can offset the entire $20,000 gain against $20,000 of your losses and apply $3,000 of losses to your ordinary income to further reduce your taxes. Assuming a 35% tax rate, you saved $8,050 in taxes (potential tax due on $20,000 in gains is $20,000 x 35% = $7,000 wiped out by losses, plus $3,000 x 35% = $1,050 in taxes saved from reduced ordinary income).

You’ll still have $2,000 left in losses that you can use against gains or income next year.

If you are a senior, do you know the RMD rules?

A few changes to RMD rules since 2020 have left many seniors confused about whether to withdraw RMDs from your taxable retirement accounts this year, tax experts say. And in this one, you don’t want to screw up, because “the penalties are pretty harsh,” notes Mark Steber, director of tax information at tax preparer Jackson Hewitt.

If the account holder does not withdraw the full RMD amount by the due date, the unwithdrawn amount is subject to a 25% excise tax, or possibly 10% if the RMD is corrected within two years , the IRS said. You can request to have the penalty waived if you have a “reasonable” excuse and you remedy the problem.

To make things easier and avoid penalties, know when you turned 72, Losi said.

  • If you turned 72 this year, your first RMD must be taken by April 1, 2025 for tax year 2024. No RMD is required this year.
  • If you celebrated your 72nd birthdaysd birthday Before On December 31, 2022, you should have taken your first RMD by April 1 and your next by December 31.

“If you didn’t take one in April, file for relief,” Losi said. Due to the confusion, “the IRS will be lenient.”

RMDs are taxed as ordinary income for the tax year in which they are taken, but if you are at least 70½, you can avoid tax by donating money directly from your account Individual Retirement Income (IRA) to a charity. In 2023, you can donate up to $100,000 as a qualified charitable distribution. You will not receive a tax deduction for the donation, but the donated amount can be used to satisfy all or part of your RMD without adding to your taxable income.

“The worst thing you can do is take the standard deduction, withdraw $5,000 from your IRA, pay the taxes, then write a check for $5,000 to your church or whatever and get no money.” advantage,” Steber said.

Medora Lee is a money, markets and personal finance reporter at USA TODAY. You can reach her at [email protected] and subscribe to our free Daily Money newsletter for personal finance advice and business news Monday through Friday.

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